At-home fitness services are experiencing explosive growth right now. Peloton Interactive priced its IPO last September and has experienced exponential revenue growth over the last several years. Another interactive fitness start-up enjoying robust growth is Mirror, which makes interactive displays for activities like yoga, dance cardio, and other strength workouts that are squarely in the wheelhouse of Lululemon Athletica (NASDAQ:LULU).
Last year, Lululemon invested in Mirror as part of a round of financing that provided $34 million to the start-up. Mirror was founded by a former Lululemon ambassador, Brynn Putnam. On the company's fiscal third-quarter earnings conference call in December, Lululemon CEO Calvin McDonald discussed the rationale for the Mirror investment. The reasons he outlined could spell another growth avenue for the apparel brand over the long term.
Mirror is one piece of a broader growth strategy
To understand why Lululemon would be interested in investing in Mirror, it's important to know that McDonald sees the brand as more than just apparel. Since McDonald became CEO in 2018, Lululemon has launched a new self-care line of products that include dry shampoo, lip balm, and lotion. The company has also launched a loyalty membership program, and last year, it opened a new store in Chicago that includes a restaurant, meditation room, and workout studios, in addition to two floors of space for merchandise.
These initiatives have been very successful so far, which makes it clear that McDonald is onto something. He sees Lululemon's total addressable market rising to the level of the entire health and wellness market, which is a $3 trillion industry.
When an analyst on the December earnings call asked what Lululemon is doing to capture more of that market, McDonald said, "I'm very interested in the space of in-home fitness in that experience." He added, "What Mirror provided [...] is the opportunity to learn how the guests are interacting with the content that is very similar to a lot of how our guests are choosing to sweat, be it through high-impact meditation, yoga, or other training activities in home."
Obviously, there is the opportunity to learn how customers of Mirror are choosing to work out, which could better inform Lululemon on product design. Listening closely to customer feedback in stores, online, and at the company's sweat classes and events over the years has been a crucial ingredient to Lululemon's success.
But McDonald also hinted that Lululemon may enter a new arena: digital content. "It really is an opportunity for us to learn both the balance of how the hardware works and then potentially app and other opportunities down the road," he explained.
McDonald went on to describe how 10,000 runners participated in Lululemon's SeaWheeze event last August, but there were 6,000 who ran virtually from around the world. With more people choosing to work out at home, Lululemon has an opportunity to offer something in the digital space, whether that be its own branded app or some other content, that could build a deeper relationship with customers.
McDonald also mentioned how this could fit the company's push into membership with the loyalty program. "There is this beautiful and very exciting balance between physical and virtual that we're interested in and exploring, and membership brings it to life," McDonald said. "We are leaning in and learning and seeing white space opportunity around the digital virtual opportunities in which how that content can equally translate into the membership program and beyond."
A road to more growth opportunities
The partnership with Mirror could open the door to all kinds of opportunities for this fast-growing retailer down the road. For example, Mirror could offer special deals on certain products to Lululemon loyalty members, or these efforts could lead to a Lululemon-branded workout app or other digital collaborations.
It's unclear how this will play out, but one thing is for sure: Lululemon is remaining very proactive in building its brand, not just through new store concepts and workout apparel. The partnership with Mirror allows Lululemon to connect with customers in the most intimate environment, their homes, while they are exercising. Lululemon is known for its customer brand loyalty, but this takes it to another level.